Getting it right
If we buy the story that EVs are taking over (other theories are out there, like hydrogen powered cars), the question for us investors is, how do we play this to make money? If we focus on the electric cars for a moment. My reasoning so far has been that it will be very hard to know which car company comes out on top of this fight. Tesla seems to be in a good spot right now, but I wouldn’t count the German engineers at Audi and BMW beaten just yet, see for example what the Porsche team did with the 918 sports car. The Japanese have proven skillful as well. Another scary fact for the car companies is after-sale. I read somewhere that a regular petrol car contains about 30 000 parts, whereas a pure electric vehicle contains about 10 000 parts. And no liquids and fluids running around that need regular servicing. This probably means a lot less income for the car companies for service and repairs of the cars and that will be tough indeed.
So if we don’t know which car company will gain most market share, then perhaps we can dive deeper into the value chain and see if we can find other winners. Perhaps a battery maker that most of the car companies will use, or a Cathode supplier for batteries that is in a unique position, or a lithium mining producer in a great spot? My tactic will be to find that sweet spot or spots where the probability of success are highest, without knowing too much about the future, except that electric vehicles will gain in popularity.
List of companies
Let’s consider the different potential “new” winners in the supply chain of an Electric Cars. Here are examples of listed companies that I have come across in my research that most likely will be involved in the fight for market share in their niche:
- Car makers (More or less all major car-players, but some stand out as more pure-plays: Tesla, BYD and Kandi/Geely)
- Battery makers (Panasonic+Tesla, LG Chem, Samsung SDI, BYD, Coslight Technology, Tianneng, FDI Electric Vehicles, Highpower International)
- Battery component suppliers (Umicore, W-Scope, Tanaka Chemical, Nippon Carbon
- Raw materials suppliers (Lithium: FMC, Albermarle, SQM)
- Electric drive train (BYD, Tesla)
- Semi-conductor technology (Infineon Techn, ST Microelectronics, Freescale, NXP, Texas Instruments)
- The mechanical drive train (Broad Ocean)
- Charging mechanism and charging stations (ZTE, Titan Energy)
- Smart-car systems suitable for EV’s (Sunny Optical, Google/Alphabet)
To invest in this type of supply chain, it almost requires you to be a global investor, because the companies involved in the process are spread on stock exchanges all over the world with focus on Hong Kong, Mainland China, Japan, Korea and the US. Future posts will deep dive into some of the companies above.